Honolulu, Hawaii
                                                     , 1999

                                   RE:  S.B. No. 32

Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 1999
State of Hawaii


     Your Committee on Ways and Means, to which was referred S.B.
No. 32 entitled: 


begs leave to report as follows:

     The purpose of this measure is to conform the state income
tax statutes to the federal Internal Revenue Code exclusions for
foreign earned income.

     This measure limits the exclusion to $72,000 in 1998, with
an additional $2,000 exclusion annually until 2002 as provided in
section 911 of the Internal Revenue Code.  In 2002 and thereafter
the exclusion is $80,000.  The measure also authorizes the same
exclusion for income earned out-of-state on the mainland as well
as elsewhere in the world.

     Testimony in support of this measure was received from an
individual and the Tax Foundation offered comments on the

     The Director of Taxation does not oppose the enactment of
this measure.  In consideration of this measure, the Director
offered the following comments:

     (1)  The foreign earned income exclusion reduces the cost of
          sending employees abroad, which may improve Hawaii's
          attractiveness to U.S. businesses choosing to relocate
          to Hawaii; and 

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     (2)  The foreign earned income exclusion may encourage
          Hawaii residents to expand their business abroad.

     Upon careful consideration of the issue, your Committee
finds that providing for a foreign earned income exclusion
provides relief to Hawaii residents who wish to maintain Hawaii
as their domicile while living outside the State.

     As affirmed by the record of votes of the members of your
Committee on Ways and Means that is attached to this report, your
Committee is in accord with the intent and purpose of S.B. No. 32
and recommends that it pass Second Reading and be placed on the
calendar for Third Reading.

                                 Respectfully submitted on behalf
                                 of the members of the Committee
                                 on Ways and Means,

                                 CAROL FUKUNAGA, Co-Chair

                                 ANDREW LEVIN, Co-Chair

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